Banks Raising Money To Lose Money?!? §
Fannie Mae just announced a $2.2 billion first quarter loss. And because of that, now they want to try to raise $6 billion by selling shares of stock.
Y'know when one of these mortgage-dealing banks loses a whole lot of money, it tries to issue more shares of stock to shore up capital. Except, when a bank issues extra shares of stock for this reason it makes me think about the negatives:
1. This dilutes the ownership value and earnings per share of each outstanding stock currently in the pockets of institutions and ordinary people.
2. Although extra money can allow a bank to loan out more, in reality it's being used to shore up capital in order to have money to cover future losses and further loan defaults.
So what's the rationale and advantage behind someone purchasing more stocks in these troubled banks when all they want to do with the money is to shore up their capital and it's very likely the money will be blown? Citi has sold billions worth of stock each time they lose billions. So have other banks and now even Fannie Mae.
Can anyone with more financial market knowledge than me try to tell me, a mere amateur, what's going on?